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Canaccord Genuity analyst Mike Walkley writes in a note to clients today. “In fact, we believe iPhones are outselling all other smartphones combined at Sprint and AT&T and selling at roughly equal volume to all Android smartphones at Verizon.”

That’s useful data. Mainly because we can use it in combination with comScore data that tracks a different market measure. comScore’s MobiLens service tracks US mobile installed base. By measuring the difference between their stats one month to the next, one can measure the gain in a particular platform.

Comparing that gain with the sell-through rate in the same period can yield a figure for the number of units sold as upgrades vs. those sold to new users.

The latest comScore data (period ending February) shows that Android added 2.87 million users to its base while iPhone added 1.52 million. If we assume that Android sold a minimal number of replacements (due to the limited time in use of bulk of units) and round up to 3 million for February, and if we assume that Apple sells as many iPhones as Android (which is what Walkley suggests) then we can conclude that in the US roughly half the iPhones are bought as replacements for existing iPhones.

Extrapolating this to global markets may be risky but already we can begin to form a picture of how the iPhone franchise is becoming an annuity-based business.

Apple likes to point out that “half of Mac buyers are first time buyers.” In the case of the iPhone perhaps they could also say “half of iPhone buyers are repeat customers.” At this stage in the platform, that’s a powerful statement. If the repeat customer rate is high then it suggests strong loyalty but it also may suggest poor competitive position vs. non-consumption or alternate platforms. If the repeat customer rate is very low it may suggest competition vs. non-consumption but it may also suggest low loyalty. It all depends on the overall growth in the market and size of installed base.

The following chart shows the overall market growth and the position of the various platforms within that growth.

Note the time scale is slightly more than two years. This suggests that the vast bulk of Android units in use (grey area) consists of first use units. New purchases are going to first time buyers. In contrast, the shrinking RIM total implies extremely low sales as the age of the base is far older than the time scale. iPhone base is both growing and being upgraded.

As we reach 50% penetration of smartphones, platform churn will become a significant component of market performance. The loyalty and “stickiness” of Android will begin to be tested. Current surveys show reasonably good satisfaction ratings for Android phones (around 60%) while iPhone’s are even higher. But let’s keep in mind that RIM’s satisfaction and the loyalty of their customers was exceptionally high a few years ago. The rate of evaporation of goodwill toward the brand is breathtaking.

The longer term test of mobile platform performance will be in the recurring purchase rates. Loyalty must be earned and preserved. I.e. “You come for the product, you stay for the ecosystem.”

So far, the iPhone seems to be getting a passing grade while Android has yet to face the test.

One issue I can see with this data is that the US-only sales information may be somewhat distorted by grey-market sales which are actually going overseas and not being added to the US installed base. I’m not sure how big an effect this is, but it might be large enough to be significant. Since it’s likely to be seasonal (with the timing of iPhone refreshes and the release timing delays to China), it might be possible to estimate by looking at the monthly ratios just after release and in mid-cycle.

The carrier vs. non-carrier sales data that recently came out might also speak to this a little, since apparently about 70% of US iPhone sales occur via carriers, and I would expect the bulk of grey-market sales to be via the non-carrier channels. If grey-market sales are only via Apple stores, then it’s probably not too big a fraction (some fraction of the roughly 15% via that channel).

Canucker

If this grey market is significant (I am not sure it is), it is getting smaller in size as Apple increases its release countries. The offset is that such grey market devices are usually unlocked and I doubt this constitutes more than 5% of total iPhone sales. The grey market for iPads has almost dried up due to availability.

r00fus

Keep in mind that, for gray-market, the iPhone being sold in the target country must be cheap, available and current.

If the US gets the 4S at $650/705/850 unlocked, and it’s either unavailable or expensive in the target country, that creates a need that the gray market fulfills.

Rudolf Charel

I can only speak for the Netherlands, but if you have the cash, buying an unlocked iPhone from Apple works out a lot cheaper than getting a phone with a contract.

Any program to suit your purpose is a lot cheaper than the combination offered by the telcos.

There is no need to go the grey-market way.

barryotoole

It is not just the price but availability. There are many countries that Apple doesn’t introduce its products.

Rob Scott

Apple added 1.6 million new users on January’s closing base
ending with 13.5% of the market. This translates to 30.2% smartphone share.
Apple will have +/- 20% share of mobile users in the US by end of August
(earliest) or November (latest) a +/- 44% smartphone share. A gain in mobile users in a direct and disproportional gain in smartphones as Apple sell only smartphones.

This is in contrast to RIM, LG, Samsung and Motorola who are either losing
users or are stagnant.

Notice that, LG, Motorola and Samsung are Android licensees
and their base as a whole is shrinking.
This is why I feel that the focus on
smartphones misses the forest for the trees.

There are no NEW mobile users all that is happening is
people upgrading from basic phones to smartphones. And if Horace is correct
then Apple is doing an amazing job compared to the competition that is LOSING
users.

famousringo

In defense of Samsung, they may be losing users but they appear to be gaining money. I don’t think they mind the tradeoff too much.

RobScottza

True. I also do not thing Samsung cares. I also think they are the next to fork Android. And do a good job at it. They are after all carrying Android.

Sulis

There is also the issue of user investment in their smartphone’s platform.

The received wisdom is that Android users don’t tend to spend so much on apps, mainly using the free versions. iOS users seem to pay more (but I suspect this a simplistic, with a significant number who hardly pay for any apps).

However, it seems reasonable to suggest that Android users will have less problem switching to other platforms than iOS ones – which seems to be the behaviour that Microsoft/Nokia are relying on with their cheap Lumia entry.

Canucker

I know I am over-generalizing but Android devices sell for the following reasons:

Apple in response:
1. Not interested in chasing to the bottom – besides 90% of the cost of a smartphone is the subscription, only 10% the device.
2. Much less of an issue with Verizon now selling the iPhone, etc.
3. Not much they can do – the more they succeed, the more these clients are likely to disagree with Apple.
4. This is already changing thanks to Google requiring more information about you to access its services. One mans openness is another mans privacy breech.
5. Apple tends to wait till the specs have matured/can be used/are practical. The pragmatic approach means they appear behind the technology curve, except their software/hardware control means optimization of hardware and focus on usability.

The last point will also diminish as the technology matures. It’s already slowing down and new features are more gimmick than gotta have. LTE is a significant advance, as is screen resolution. Processors will get faster/more cores but the curve is flattening. This will result in commoditization and there is no doubt that Huwei and ZTE are salivating at that thought.

OpenMinde

The most important reason Android sell is carrier pushing. You can go to any carrier store (AT&T, VZ, etc.) and ask for a smartphone. The sales will try to sell you one of variant Android. Even if you ask for an iPhone explicitly, they still want to talk you out of it most of time. It is a simple math of profit. To end users, they are all $199 phone, but to carriers one is $300~350 phone, another is $550~650 phone. Look at the sales of tablet, there is no carrier distortion and no Android almost (if you don’t count Kindle).

http://wmilliken.livejournal.com/ Walter Milliken

I haven’t tried asking in a carrier store (I tend to buy Apple stuff online), but even if they’re pushing Androids, the customers are pushing back bigtime, if the latest survey results are right, where iPhone equals/outsells total Android sales in stores where both are available.

As far as tablets go, there’s another carrier (non)-distortion at play there, which is the fact that cellular access is an accessory for the iPad, not a requirement/main feature, and so people don’t go looking to buy them in carrier stores. Thus there is no bias due to some carriers having the iPad and others not, like there was in the early days of Android, where Verizon and Sprint *had* to sell non-iPhones. I think this may be the primary source of the current size of the Android installed base.

Given the recent sales results and the ‘stickiness” differences in the user satisfaction polls, I’m guessing the Android/iPhone installed base ratio will move from 2:1 currently to much closer to 1:1 within the next couple years, unless something changes radically. (This is primarily for the US, I’m not sure how the pre-paid parts of the world will play out.)

Canucker

Pretty much the only adverts I see for Android tablets is via carriers where their subsidized price brings them closer to or undercuts the iPad pricing. Are 3/4G Android tablets available unlocked? Whatever happened to the 4G PlayBook (don’t answer, its obvious). Of the 3/4G tablets available, I’d guess the iPad marketshare is even greater than with WiFi tablets.

http://wmilliken.livejournal.com/ Walter Milliken

Relative to commoditization, I think Apple may have an ace in the hole there — battery life. They seem to be working hard on both increasing power efficiency and improving battery design (so far mostly in form-factor). I’m not sure the commodity phone vendors will be able to follow that as easily as they buy CPU and baseband chips.

I also wouldn’t be surprised if Apple started playing with doing their own baseband stuff at some point, also, given the LTE power issues, though standards limit the scope of changes there. Not sure how they could get into baseband, since there are only a few chip players there, and I don’t think there are any custom cores available.

Canucker

I’m not sure about this. Apple is certainly investing heavily in battery technology and was first to move to non-removable batteries in most of its portable products (starting with the original iPod). However, batteries are widely used in multiple sectors and even Apple cannot be expected to be the innovation leader. There are billions at stake in transport, energy storage, etc. I also think Apple’s advantages are not so much in their batteries per se, but in their careful design and use of components and software to eek out low power draw.

Apple is clearly taking a much greater interest in cpu design optimization (A4, A5 licenses), RAM efficiency and in screen displays – especially capacitive touch. Basically, each of the key components where quality differentiation is possible.

http://wmilliken.livejournal.com/ Walter Milliken

While batteries have wide applicability, there are a lot of novel battery technologies being kicked around, both at universities and startups, as well as major current manufacturers. It’s entirely possible Apple might acquire an exclusive patent license for mobile use (like the one they got from Liquid Metal), or buy up a battery startup with a really good technology and patents on it, and then license them to their contract battery suppliers. That could leave the rest of the mobile device market either stuck with the old technologies, or hunting very hard for a different new one.

I don’t think any of the current mobile vendors have a lock on better battery manufacture — in fact, I think most of them buy commodity batteries from third-party vendors. I think this is a place where Apple could leverage its cash and growing expertise in the area to jump ahead, not by inventing the new technology themselves, but by understanding it well enough to know when they see a plausible winning startup.

Do I think this is likely? Very hard to say, but I see it as a potential quantum leap ahead again if they happened to manage to do it, and it’s at least possible.

Manish Bansal

If half of iPhone buyers are repeat customers, can we conclude that half of iPhone buyers are first time buyers (similar to mac)?

Rob Scott

Yes. They are like on the Mac, switchers. They used to be Samsung, Motorola, RIM, LG, HTC, etc customers and now they have switched to Apple thus the iPhone/iOS.

People, the masses, buy Brands not platforms, which is why these descriptive analytics from Horace are unfulfilling.

What I want to know is what is going to happen next, and that almost never happens on this blog.

http://twitter.com/gerrymcgarry Gerry McGarry

Platforms are emerging brands.

Rob scott

Agreed. However, that is not the case right now.

Joe_Winfield_IL

I respectfully disagree on the brands/platforms comment. iPod was revolutionary and unique when it came out, with the touch wheel as a defining advantage. Over time, plenty of alternatives emerged at much better price points. iTunes had a lot to do with the continued loyalty of customers because:

1) The platform works well. Why fix it if it ain’t broke (even if the device itself is)?
2) The platform is proprietary. Changing to anything else would be a nuisance and involve time consuming and boring transcoding and copy/paste actions.

Of course the products had to stay excellent or users would have still left. But it was much more than brand that kept iPod humming. Now we have iCloud and App Store to add to iTunes. I know that if I buy a new Apple product, my content is a few clicks away. If I buy anything else, I need to de-Apple all of my pictures, songs, movies, and apps. At the very least, I’ll need to go find equivalent versions one at a time. As long as the Apple products don’t suck, I’m lazy enough to stick with repeat purchases. I suspect that I’m not alone. That’s why the new iPad is brilliantly named “the new iPad.” When your iPhone/iPod/iPad runs its course, you can just get “the new” one without much critical thought.

twilightmoon

Touch Wheel was just one of several advantages. The first iPod had these advantages.
1. Dramatically faster to load content (firewire vs usb1)
2. Far easier to organize your tunes (iTunes)
3. Scroll Wheel. (later the click wheel)
4. Much smaller than other hard drive based players which were huge bricks.

Joe_Winfield_IL

Agreed, but that does t change my argument. Inspired by iPod, others were able to replicate these features. The availability of small hard drives and flash storage, widespread USB 2.0, better jukebox software, etc. leveled the playing field, but iPod has maintained its share for a decade. I attribute that fact to the platform lock-in more than brand loyalty.

twilightmoon

I attribute the continued success to iTunes, and iTunes Music Store. And later the App Store (iPod touch).

Joe_Winfield_IL

I would define iTunes, iTMS, and the App Store as “platform” services for Apple. All exist solely to Get people to buy more Apple stuff, not as standalone businesses. I would definitely add iCloud to the list as well.

http://www.asymco.com Horace Dediu

We all want to know what happens next but the answer to that question is within yourself.

Jeff g

I don’t find them unfulfilling (or fulfilling). I find them insightful, analytical, synthetic, informative and entertaining.

Rob Scott

I’m coming
from the point of view that the analytics are not developed to the fullest
possible extent. That the analytics here tend to be descriptive and/or
diagnostic and almost never progress to the next phase of predictive and
prescriptive analytics. There is of course nothing wrong with descriptive
analytics, which is why Horace in a very short space of time has become one of
the best Apple analysts in the entire world.

When I said
the analytics here are unfulfilling, I was thinking of a food analogy. Horace
is like the greatest cook/chef there is that prepares and makes available the
tastiest food possible. Food that stimulates all your senses, taste, smell,
touch, etc., that finish while you still want more. Having said that, unfulfilling
was a wrong choice of words.

The thing
is I feel like Horace can move beyond his comfort zone of diagnostic analytics,
and I think there is enough material (most of it made available for free by
him) to offer some predictive analytics and possible prescriptive analytics too.

For instance
there is real chance that Apple will hit 20% market share of mobile phones in
the US before the end of this year and this will translate to a very high share
of the smartphone market, something like +40%. Assuming that this happens, what it means then
for Apple in the US? Samsung seem to have hit a ceiling at 25% share of the
market? So did LG and Motorola before it. Is Apple about to peak in the US? Is
there anything that Apple can do to grow its share past the apparent ceiling of
25% market share? Apple has the old iPhone at lower prices strategy and
according to them, this has been very successful so far. If price as a strategy
is already in full play, what else can Apple do to avoid the suggested +70%
Android market share.

The comscore
mobile market data coupled with the smartphone data (& Nielsen data) is very rich, I think Horace can develop his
theories and analytics to the fullest possible extent. Unfortunately this rarely
happens in this blog.

Yes, his
descriptive analytics help us get into the next step. I would be nice though if
he were to get us there…

http://www.asymco.com Horace Dediu

Yes.

Canucker

It’s interesting that Windows Phone continues to stagnate. The Lumia 900 reviews are very luke warm (despite the unprecedented hype and soda pop tactics in selling). This is the flagship device and at a low price. But the Lumia 900 suffers from screen bloat (larger screen same relatively low resolution as the Lumia 800) and continuing deficits in the operating system. I also doubt that new WP7 buyers are coming off old WinMo devices any more so they are directly competing for “open-minded” consumers. The lack of loyalty, lack of eco-system tie-in and lack of technological “whiz” is conspiring to undermine the entire brand, at least in the US. If it was not for the enormous advertising in North America and deep pockets of Microsoft, this would be a dead-man walking brand.

Childermass

It’s getting increasingly hard to take these numbers on their own, and, as a consequence, they tell us less and less. The rest of the information needed describes how the phones are used.

We know (broad generalisations):
Android users do not access the internet much
They do not buy Apps much
They like cheap phones
They take what the carrier pushes at them

Are these phones therefore smart phones at all?

Yes they have the capacity to be a smart phone, but what defines ‘smart’? Technical capacity or usage? If one person eccentrically uses something in an unexpected way, like using a smart phone only to make phone calls or send text messages, then that person’s usage is anomalous. But if the majority of users do that then the description of the device becomes anomalous.

It seems Android phones are not being used as smart phones, so maybe they are ‘dumb’ phones after all and the true smart phone market is as dominated by iOS as is App sales and internet access.

http://wmilliken.livejournal.com/ Walter Milliken

There is one contradicting piece of data that suggests Android users are doing *something* with those phones besides making calls and texting: they apparently use a lot more data than even iPhone users. Maybe they’re all listening to Internet radio? Or watching free Youtube videos of cute cats?

Joe_Winfield_IL

Tethering is typically much less restricted on Android headsets for some reason. We know from ATT (and sorry I’m too lazy to find a link to the story) from a few months ago that most of the top 5% data users are tethering or using the phones as hot spots for other devices, NOT just using the phones for mobile web browsing.

If we look at ATT as typical, a small number of Android users could certainly skew the average for the whole OS – especially if some of these carriers have restricted iPhone connection sharing.

Canucker

It’s not the user necessarily requesting/using the data, its Google feeding them ads (and building their database).

http://wmilliken.livejournal.com/ Walter Milliken

I don’t think ad delivery or data-sucking would use the kind of bandwidths reported — it tends to take video or long-running audio to eat that kind of bandwidth. Or as Joe Winfield points out, tethering.

Tatil

A couple of weeks ago, there was a data consumption comparison between free and paid apps on Android posted on some blogs. The difference was quite substantial.

http://twitter.com/gerrymcgarry Gerry McGarry

I might be the widgets and apps running in the background using the extra data and battery.

Westechm

What does the installed base include? Is it phones purchased, or is it phones still being used?

I have the impression that Android phones have a greater ‘churn’, that is a shorter usage life that iOS phones. Is my impression factual?

http://wmilliken.livejournal.com/ Walter Milliken

I believe the installed base reported is normally devices actually in active use. I think most of that kind of data comes either from website monitoring or user polls, rather than monitoring of sales or shipments.

http://www.asymco.com Horace Dediu

See comScore’s web site on methodology. I believe the data is drawn from online surveys and measures consumers aged 13 or older and primary use device only. Installed base means products in us. Change in installed base could mean sales rate but only if there are no replacements.

barryotoole

I’m no financial data genius, but it occurred to me that the ‘growth’ of Android may be users replacing their old Android sets with new ones.

The reason I say this is because at work, most of them have iPhones. Some that have Androids, are waiting for their contracts to be over so they can get an iPhone. Maybe a couple who won’t ever buy Apple are sticking with Android sets.

Hamourabi

Not sure that replaced iPhone are thorn away. Most keeps being used by other family members or friends or they are sold. I do think user base increase is very similar to new sales.

http://twitter.com/bennomatic bennomatic

Agreed, although it’s important to note that these sale+hand-off transactions are just similar, not identical, to new sales.

While in some cases, the hand-off leads to a new happy customer who continues to buy iProducts well into the future, in others, it’s just an extended life for the existing product. I know a lot of people who handed their 3G off to their spouse, and then handed the 3GS off to the spouse, who handed the 3G off to a parent. And then the same shuffle happened with the 4 when the 4s came out. By now, the 3G has hit its end of life, and it’s likely the 3GS won’t see too much more action once the next iPhone comes out.

It’s my understanding that Apple gets no revenue from service contracts on used (i.e. non-subsidized) phones, so the only immediate value that they would get from these transactions would be:

– Content (music/app/video) purchases from the owner of the used device.
– Potentially, new accessory (charger, case, etc) revenues).
– “Halo” purchases, e.g. buying a Mac or iPad based on a good experience with the iPhone.

There are a couple of “non-loss” benefits I can see as well:

– Stretching the life of these devices delays the inevitable cost of recycling.
– Non of these iHeirs becomes invested in another mobile product’s ecosystem.

That last one is important, because that means that if the family flow of iPhones stops for some reason (i.e. the original owner’s children become old enough that they get first dibs before the original owner’s parents), they are more likely to become buyers themselves, if they can afford to be.

So it is interesting that this is indeed competition with non-consumption, but in the form of a long-term investment using products which last 2-3 times the length of a normal contract. A risky path to take, but a good one if you’re sure of the quality of your product.

And it begs the question: how many of those replacement-buyers didn’t actually buy their first (or second) iPhones.

http://www.amazon.com/-/e/B002VH8ECQ Brian S Hall

Excellent!
I’ve long wondered how many new iPhone purchases were replacements for existing customers.
And for your next assignment…;-)
I’ve also wondered how much the typical smartphone customer would be willing to give up in terms of apps and content costs before switching to a new ecosystem.